Recently, the Organisation for Economic Co-operation and Development (OECD) issued due diligence guidance for Responsible Supply Chains of Minerals from Conflict-affected and High-Risk Areas. These guidelines follow in the well-established concepts of governments and business joining forces to tackle a common problem, in this case, the respect of human rights and security for the local populations from criminal groups, terror organizations and paramilitary rebels operating in remote areas of the DRC (Democratic Republic of the Congo). Prior successful joint government and business programs to tackle supply chain issues of security and transparency are the US C-TPAT program (Customs Trade Partnership Against Terrorism), the Canada PIP program (Partners in Protection), and the European AEO program (Authorized Economic Operator).
These OECD guidelines, while not legally binding, are a necessary first step in helping the local populace, developing countries, and multi-national corporations meet the requirements set out in section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act HR 4173, the UN Security Council Resolution 1952, and the Lusaka Declaration approved by the ICGLR (International Conference on the Great Lakes Region). The challenge to the artisan miners, the local populations, the multi-national corporations and the DRC is the actual audit and certification of a conflict-free supply chain.
While multi-national corporations rely on these conflict-area minerals for their products, highly desired by consumers world-wide, they have the moral obligation of ensuring that the artisan miners and the local populace in the remote areas of the DRC are not exploited by various interests for their nefarious ends. The corporations must do everything possible to ensure transparency and security throughout the entire supply chain, starting at the mine itself and not at the smelter stage.
To successfully do this, corporations must exercise due diligence through independent third parties that have the capabilities to successfully operate in high-risk areas and properly document each stage of the process to ensure conflict-free status. Companies that do this can reduce external and internal risks to their manufacturing processes, the local population, their brand name, and finally potential legal liabilities for violations of the aforementioned laws. Furthermore, these corporations will be providing a positive social service to the DRC government in that their actions are helping reduce the financing and fueling of anti-government groups. This in turn will lead to improved conditions for the people of the DRC and for more investors to want to conduct business within the DRC because of its stability.
The conflict mineral supply chain mandate is another example of the ever-increasing requirement under regulations enforced by CBP, by DHS and now, by the SEC, for importers to have complete confidence in the materials being imported to the United States in their names. Today’s dangerous and tumultuous times are causing increased and in-depth inspection requirements mandated by various governments, not just within the United States. The inherent vulnerabilities within all supply chains, especially the conflict mineral chain, are creating problems that require innovative solutions. Within the current conflict mineral certification guidelines, there are feasible, affordable solutions, such as exploiting current best practices of the C-TPAT/PIP/AEO programs coupled with the understanding of high-risk environments creating the ability to provide effective, credible inspections in a manner that reduce the burden on check points themselves. This in turn saves the corporation valuable time of getting their products to their destination and increases revenue for the stockholders. It isn’t too much of a stretch to expect that by some point in the future, supply chain assurance is going to be required of everything coming into the United States. Not only is it good security, it’s good business.
In this high-risk environment, corporations must have vibrant management systems that strongly communicate and actively demonstrate to employees and outside entities their commitment to a conflict-free supply chain. They must identify, assess and most importantly, address risks to their supply chain. They must document their supply chain audit findings and also their efforts to correct problems and/or potential problems to ensure a conflict-free environment. And finally, they must report their efforts to the various government agencies, and then to the public, through their annual reports, and an advertising campaign, if they so desire, on their progress.
For corporations to successfully operate in high-risk, conflicted areas, they must know their suppliers, business partners and their customers to help ensure not only the security of their supply chain, but also, the good name of their company and help improve the living conditions of those less fortunate than themselves. Corporations that may not have the in-house expertise required to conduct a practical audit in high-risk areas must ensure that their auditors have the experience and expertise to fully understand the cultural dynamics of the people and entities operating in these conflicted areas, and the ability to effectively understand and report on the issues. By conducting viable audits, the companies ensure transparency to help reduce crime and threats to nations attempting to improve the environment for their citizens and also ensures their customers of a conflict free product.